The lottery cash mountain II

The lottery cash mountain II

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Jane Taylor looks at the practices and policies that the boards hope will wipe out the embarrassing cash pile over the next couple of years

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Last month I looked at the basics of how the National Lottery Distribution Fund works, and outlined the Culture Secretary’s tougher approach on getting the boards to speed up the flow of funds and cut their balances. In this article I outline what the DCMS is recommending in the way of ‘good practice’ and what the key differences are between the boards in handling NLDF balances.

The state of balances
Table 1 shows how much each distributor had in the NLDF at September 2002 and how much of this was ‘committed’ for approved awards. In total, the distributors had £3.52bn in the bank, but between them they had promised funding worth £3.99bn – in other words, 13.5% over-committed. This level of over-commitment is healthy, because the income from lottery sales is not going to suddenly dry up, and over-commitment keeps the money flowing. But the total figure smoothes out very big differences between boards, as you can see from the final column in Table 1, giving the proportion of over- or under-commitment. Each board has its own definition of ‘committed’ funds, and its ability to control cash flow will vary both with individual projects and more importantly with the type of programmes it runs (see below). But in general large amounts of unallocated cash sitting around in the NLDF is a bad thing. And as the table shows, the positive balances (under-commitments) are nearly all with the smaller boards.

Table 1

The DCMS has asked boards to improve matters so that everyone’s NLDF balances are brought close to zero by mid-2006.

Down to zero
Based on best practice, the DCMS highlights various measures to help reduce balances:

tighter, more frequent project reviews
introduce programmes that will attract more applications
don’t make ‘in-principle’ commitments to projects too early in the applications process
simplify the applications process
introduce fast-track measures for low-value projects
relax certain match funding requirements
introduce strict timetables and deadlines by which projects must get under way after grant approval
consider requiring larger projects, especially capital ones, to employ a consultant to manage the launch. Alternatively, consider making project planning grants for the preparatory stage
in other cases, make a small-scale development grant for thorough groundwork to be done ahead of the main project
provide cash upfront for low-value projects.

The state of the boards
Certain types of programmes are guaranteed to slow down the movement of funds. Big capital schemes are the main one, where there may be a two-stage application, followed by a time-lag of a year or more before a project even begins to draw down its funding, and thereafter it could take years before all the money is claimed. This particularly affects Arts Council England, Heritage, some NOF projects, and the film councils, where funding a major feature film can be as slow as building a cinema.

HLF says its average turn-around time from receipt of an application to first payment is 21 months. Arts Council NI says its average across all programmes is 99 days. Arts Council England gives a five-month turnaround figure for its RALP programme. Other boards could not or would not provide an average figure for me at all. The HLF has taken a lot of flak in the past for being slow at shifting its money, but it is now over-committed and has made a strategic switch towards schemes that produce more smaller awards. It has also pioneered the use of development grants to help speed project preparation ahead of the main award. Heritage also reports that in its experience, big capital projects are taking ‘significantly’ longer now to make their first payment request than they were three years ago. On major capital projects some, such as Sport England, do not pay out any money in advance. Others are happy to pay upfront in accordance with agreed payment schedules, usually against presentation of invoices. NOF does not pay upfront, but is looking to change this, so that it can ‘facilitate cash flow during the development phase’.

NOF, which has also been fingered in the past for being slow to get its cash out the door, reports that it has particular problems trying to get statutory sector awardees to claim the money they are owed for completed projects. Local authorities take note and claim promptly!

With small projects it is quite common for at least some cash to be paid upfront immediately after grant approval. For awards up to £10K, the Community Fund may pay the full amount in advance. HLF will pay out up to 50% of its commitment on a Your Heritage award in advance to help with cash flow. Arts Council NI may provide to half of a revenue award in advance (up to £50K) and the Sports Council NI make up to 80% of instalment payments in advance against quarterly budget needs. NOF pays revenue awards through quarterly advance payments. The Community Fund and HLF both impose a 12-month deadline by which grant recipients must have started drawing down their funds. HLF also says it is going to start chasing grantees who are using the money slowly. The Sports Council NI is stricter still, imposing both a six-month start deadline and then a 12-18 month (depending on project size) completion date.

Special circumstances
I was particularly anxious to find out why certain boards seem heavily underspent on their funds. The Millennium Fund is the big one, appearing in table 1 to have 47% of its cash unallocated – and this for a board which is winding down its operations. A few big-ticket items knock this figure back into shape, including £100m for the new UnLtd endowment and £25m for the ReDiscover science exhibition scheme. The current level of under-commitment is probably nearer £25m, which the fund plans to spend on enhancements for its original big capital schemes. Several small boards – Film Council, Arts Council NI, Scottish Arts, Sports Council NI and Sport Scotland are at least 20% underspent. Not all of them were inclined to explain why. The Arts Council NI has suspended its three revenue programmes until April, and is reviewing programmes to see how it can improve its cash transmission. It is also planning to introduce a target over-commitment level next year. The Sports Council NI says it is now over-committed, but plans to eliminate this, as it does not intend to have a policy of over-committing on its balances. The Film Council says it has only £10m uncommitted funds at present. The biggest over-commitment in the table above comes from UK Sport, which says this figure includes a series of commitments stretching to 2005. UK Sport has about £25m a year lottery income, which makes its overspend look less awesome. Next most over-committed is Sport England, where there is a grant-making moratorium pending a full financial review.

More changes to come?
Several boards say they are hoping for more relaxed financial directions so that they in turn may loosen the financial reins for projects a bit. Several pointed out that partnership funding rules were hugely burdensome on projects, especially in the current economic climate. And several, though not all, are drawing up balances policies in line with the DCMS’s guidance. Next year I’ll be checking the annual reports to see what progress has been made. My thanks to all those boards who furnished useful information at short notice.